Qualcomm 2004 Annual Report Download - page 63

impact of the change, the following table compares royalty revenues recorded as revenue in fiscal 2004, 2003 and 2002 to royalties reported
by the Company’s licensees during those same periods (in millions):
2004 2003 2002
Royalty revenues from external licensees, as recorded in the Company’s consolidated statements of operations $1,141 $ 838 $ 725
Estimate recorded for the fourth quarter of the prior year for Estimated Licensees* 151 150 122
Estimate recorded at end of the current year for Estimated Licensees — (151) (150)
Total royalties reported by external licensees during the current year $1,292 $ 837 $ 697
*Recorded as revenue in the prior year, but reported by licensees during the current year.
The table above illustrates that the difference between royalties reported by external licensees and royalty revenues from external licensees
recorded in the Company’s consolidated statements of operations has equaled the difference between the estimate for Estimated Licensees
at the end of the current year and the estimate for Estimated Licensees at the end of the prior year.
Revenues from sales of the Company’s CDMA-based integrated circuits are recognized at the time of shipment, or when title and risk of loss
pass to the customer and other criteria for revenue recognition are met, if later. Revenues from providing services are recorded when earned.
Revenues from long-term contracts are generally recognized using the percentage-of-completion efforts-expended method of accounting, based
on costs incurred compared with total estimated costs. The percentage-of-completion method relies on estimates of total contract revenue and
costs. Revenue and profit are subject to revisions as the contract progresses to completion. Revisions in profit estimates are charged or credited
to income in the period in which the facts that give rise to the revision become known. If actual contract costs are greater than expected,
reduction of contract profit would be required. Billings on uncompleted contracts in excess of incurred cost and accrued profit are classified
as unearned revenue. Estimated contract losses are recognized when determined. If substantive uncertainty related to customer acceptance
exists or the contract’s duration is relatively short, the Company uses the completed-contract method.
The Company provides both perpetual and renewable time-based softwarelicenses. Revenues from softwarelicense fees are recognized when all
of the following criteria aremet: the written agreement is executed; the softwareis delivered; the license fee is fixed and determinable; collectibility
of the license fee is probable; and if applicable, when vendor-specific objective evidence exists to allocate the total license fee to elements of
multiple-element arrangements, including post-contract customer support. When contracts contain multiple elements wherein vendor-specific
objective evidence exists for all undelivered elements, the Company recognizes revenue for the delivered elements and defers revenue for the
fair value of the undelivered elements until the remaining obligations have been satisfied. If vendor-specific objective evidence does not exist for
all undelivered elements, revenue for the delivered and undelivered elements is deferred until remaining obligations have been satisfied, or if the
only undelivered element is post-contract customer support and vendor specific objective evidence of the fair value of post-contract customer
supportdoes not exist, revenue from the entire arrangement is recognized ratably over the support period. Judgments and estimates are made in
connection with the recognition of software license revenue, which may include assessments of collectibility, the fair value of deliverable elements
and the implied support period. The amount or timing of the Company’s software license revenue may differ as a result of changes in these
judgments or estimates.
The Company records reductions to revenue for customer incentive programs, including special pricing agreements and other volume-related
rebate programs. Such reductions to revenue are estimates, which are based on a number of factors, including our assumptions related to
historical and projected customer sales volumes and the contractual provisions of the customer agreements.
Unearned revenue consists primarily of fees related to software products and license fees for intellectual property for which delivery is not yet
complete and to hardwareproducts sales with a continuing service obligation.
Concentrations
Asignificant portion of the Company’s revenues is concentrated with a limited number of customers as the worldwide market for wireless
telecommunications products is dominated by a small number of large corporations. Revenues from Samsung, LG Electronics and Motorola,
customers of the Company’s QCT, QTL, QWI and other nonreportable segments, comprised 15%, 15% and 10% of total consolidated revenues,
respectively, in fiscal 2004, as compared to 17%, 13% and 13% of total consolidated revenues, respectively, in fiscal 2003. Revenues from
Samsung, Kyocera and LG Electronics, customers of the Company’sQCT, QTL, QWI and other nonreportable segments, comprised 16%, 14%
and 12% of total consolidated revenues, respectively,in fiscal 2002. Aggregated accounts receivable from Samsung, LG Electronics and Motorola
comprised 51% and 48% of gross accounts receivable at September 30, 2004 and 2003, respectively.
Revenues from international customers were approximately 79%, 77% and 69% of total consolidated revenues in fiscal 2004, 2003 and
2002, respectively.
Cost of Equipment and Services Revenues
Cost of equipment and services revenues is primarily comprised of the cost of equipment revenues, the cost of messaging services revenues
and the cost of development and other services revenues. Cost of equipment revenues consists of the cost of equipment sold and sustaining
engineering costs, including personnel and related costs. Cost of messaging services revenues consists principally of satellite transponder costs,
network operations expenses, including personnel and related costs, depreciation, and airtime charges by telecommunications operators. Cost
of development and other services revenues primarily includes personnel costs and related expenses.
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